I am currently trading price action on the D1 of all the major pairs. My approach is very much informed by Bob Volman and his book ‘Understanding Price Action’. I am exclusively using the five setups he lists in his book. These are:
- The pattern break;
- The pattern break pullback;
- The pattern break combi;
- The pullback reversal; and
- The trade-for-failure.
So far, the approach has been working quite nicely, and I would like to generate some discussion about these setups. This is because, while Volman is exceptionally thorough, his book is written for the M5 of the EURUSD. His 10/20 pip bracket was calibrated for that setting, and he makes no claim that it was optimal even then; it was just a simple trading plan through which to demonstrate the greater price action strategy.
To kick things off, I would say that I have already noted the following differences:
a) Overall, I think that the EMA(25) is too fast on the D1 to correctly illustrate the ‘dominant pressure’ and to act as a filter for pullback reversal trades. The EMA(50) has been working much better for me in that regard.
b) Regardless of whether the EMA(25) or EMA (50) is used, price seems more comfortable heading away from the moving average for exended periods on the D1. Our sense of what is ‘too far’ from the EMA is going to be slightly different than Volman’s. It would be fantastic if we could come up with an objective filter for this. Some multiple of the ATR, perhaps?
c) Buildups appear to involve fewer candles, generally, on the D1. I suspect that this is a function of the speed at which humans make decisions. On the scale of minutes, you can see traders hesitating indecisively on the charts. On the scale of days, traders have plenty of time to analyse, plan, and react.
d) Pattern lines are somewhat less clear-cut. This isn’t really an issue, and I suspect that if you were to look at this ‘margin of error’ as a percentage of the relevant price range, the two charts would be pretty similar. But visually, there is a difference. I also note that Volman sets his charts to display only to the nearest pip (rather than pipette), which is not a function that I have on MT4 for android. It is worth remembering, though, that Volman is artificially (but transparently) tidying up his charts to better see the pattern lines.
e) The M5 brackets are clearly not relevant on the D1, and I have been using technical levels to set stop losses and profit targets. Multiples of the ATR would be another approach.
f) Trade volume (on a per month basis) is quite low, and trade management, in the form of locking in profit, seems more important than on the M5, where upcoming news events could simply be avoided. I’m currently using a chandelier stop, but I’d be interesting in hearing other approaches.
Has anyone else has taken Volman’s approach to the D1, or if there is any interest in doing so?